On The Edge

Posted on Sunday, June 23rd, 2019

It is so important to have a handle on your emotions when investing. Bonds, stocks and gold all seem to be headed to new highs as investors are buying everything that isn’t nailed down as central banks around the world loosen policy even further.  This move higher has investors on edge looking to chase asset prices with possibly the most important in the last two years on tap. Investors are under weight equities and may be about to panic. It appears that everyone sees a recession on the horizon especially if there is no trade deal. That recession has investors holding lots of cash. A break out could have investing pros underperforming and could force them to put cash to work.

For ten years we have see markets run higher on central bank intervention in spite of horrible economic numbers. This is only slightly different. We see a recession on the horizon but markets look to be heading higher first. We may be catching the last ten percent and that is never wise but we can’t fight ALL of the world’s central banks. A pullback this week could find a lot of cash waiting to be deployed.

We are on guard for a steepening of the yield curve. It is not the inversion of the yield curve that screams recession – it is the steepening of the yield curve after inversion. The inversion of the yield curve is the bond market telling the Fed that they have it wrong – the economy is weakening – and they need to cut rates. When the Fed begins lowering rates the yield curve steepens which is the signal that the recession has begun. The Fed all but stated that they are cutting rates next month. If the yield curve steepens the danger increases.

We have been in a sideways market for 18 months. Generally, when we see this type of market the market will break out the way it came into the current level. In this case that breakout would go higher. This week was triple option expiration and we discount what happened as it is really more about the options market than the overall market sentiment. The week after OPEX is usually negative. A selloff could be exacerbated by investors seeing an overbought market turning tail and rethinking their response to the Fed and that may turn out to be a great buying opportunity. With the G20 at the end of the week this is going to be one very interesting week and it may dictate the tone over the next few months if not years.

We said that precious metals had our rapt attention and they had a great week last week. The Federal Reserve lowering interest rates should weaken the US Dollar and help gold bulls. Gold is now very over bought having run to their highest level in 6 years. Be careful.

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

 

 

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

 

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.